Optimistic Investors Push The Phoenix Mills Limited (NSE:PHOENIXLTD) Shares Up 27% But Growth Is Lacking

The The Phoenix Mills Limited (NSE:PHOENIXLTD) share price has done very well over the last month, posting an excellent gain of 27%. The last month tops off a massive increase of 121% in the last year.

Following the firm bounce in price, Phoenix Mills' price-to-earnings (or "P/E") ratio of 50.6x might make it look like a strong sell right now compared to the market in India, where around half of the companies have P/E ratios below 31x and even P/E's below 17x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

While the market has experienced earnings growth lately, Phoenix Mills' earnings have gone into reverse gear, which is not great. It might be that many expect the dour earnings performance to recover substantially, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Phoenix Mills

Keen to find out how analysts think Phoenix Mills' future stacks up against the industry? In that case, our free report is a great place to start.

How Is Phoenix Mills' Growth Trending?

The only time you'd be truly comfortable seeing a P/E as steep as Phoenix Mills' is when the company's growth is on track to outshine the market decidedly.

Retrospectively, the last year delivered a frustrating 13% decrease to the company's bottom line. However, a few very strong years before that means that it was still able to grow EPS by an impressive 2,633% in total over the last three years. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.

Looking ahead now, EPS is anticipated to climb by 20% during the coming year according to the analysts following the company. That's shaping up to be materially lower than the 24% growth forecast for the broader market.

In light of this, it's alarming that Phoenix Mills' P/E sits above the majority of other companies. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. There's a good chance these shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

The Bottom Line On Phoenix Mills' P/E

The strong share price surge has got Phoenix Mills' P/E rushing to great heights as well. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our examination of Phoenix Mills' analyst forecasts revealed that its inferior earnings outlook isn't impacting its high P/E anywhere near as much as we would have predicted. Right now we are increasingly uncomfortable with the high P/E as the predicted future earnings aren't likely to support such positive sentiment for long. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Phoenix Mills you should know about.

If you're unsure about the strength of Phoenix Mills' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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